PUBLIC FINANCE PRACTICE GROUP E-NEWS — AUGUST 16, 2006
MSRB Seeks Comments on Potential Rules Changes
Related to Electronic Official Statements
Summary
The MSRB has proposed an "access equals delivery" system for official statements related to new
municipal bond offerings (MSRB Notice 2006-19). Under such a system, underwriters would no longer
have to deliver paper copies of official statements to customers. Instead the rule would require
electronic posting of official statements in a timely manner for customer access. The proposed model
aims to increase efficiency and reduce costs within the municipal bond market. A number of open
questions remain and the MSRB seeks comment over the next six weeks as it attempts to formulate the
exact nature of the proposed changes.
Background
The MSRB has proposed the "access equals delivery" system following the SEC’s recent adoption of a
similar system for the registered (corporate) securities market. In that market, issuers must now file
registration statements and prospectuses electronically through the SEC’s EDGAR system in
connection with an offering. The investing public can access such information at no charge on the
SEC’s centralized website.
Current Rules
MSRB rules currently impose on municipal bond underwriters specific timing and delivery requirements
for the transmission of final official statements to customers. Rule G-32 currently conditions the sale of
new issue municipal bonds on the delivery of a final official statement to the customer. Rule G-36
additionally requires underwriters to submit final official statements to the MSRB. For those issues
subject to SEC Rule 15c2-12, a dealer must send to the MSRB a final official statement within one
business day after receipt from the issuer, but not later than ten business days after any final
agreement arises related to the municipal securities. Official statements sent to the MSRB may be in
print or electronic format (approximately half are currently filed in electronic form).
Proposed Rule Changes
The MSRB has proposed to implement an "access equals delivery" model for official statements in the
municipal bond market. The market’s access to investor information would rely on timely access to
electronically filed documentation rather than on timely delivery of non-electronic materials.
Accordingly, the MSRB will contemplate the following potential changes to Rule G-32, among others:
ƒ
Eliminate the current prohibition on settling a customer transaction in new issue
municipal securities if the customer has not received a physical copy of the final
official statement.
ƒ
Rule G-32 would only require the dealer selling the securities to provide adequate
notice to the customer that an official statement is available electronically.
1
ƒ
Dealers would have to send customers a printed version only upon request.
The MSRB would also revise Rule G-36, including as follows:
ƒ
All submissions of final official statements to the MSRB in advance of primary
offerings would have to be in electronic form.
ƒ
The MSRB suggests that it may simplify the timeframe for submitting official
statements.
Questions Posed by the MSRB
Although the MSRB is seriously considering an "access equals delivery" system, it has left unanswered
a number of questions surrounding the proposed changes. As it contemplates these modifications, the
MSRB seeks comment in two broad areas.
1. What type of electronic format best serves as an industry standard?
The MSRB seeks comment on a number of issues related to the format for electronically filed
official statements. The MSRB specifically wants market participants to comment on:
ƒ
The current availability of electronic official statements
ƒ
The potential burdens, if any, of requiring that all Rule G-36 submissions be in
electronic format
ƒ
Whether all electronic submissions should be in portable document format (PDF), or
some other electronic format
ƒ
The burdens and risks placed on issuers, underwriters, or investors by various
electronic formats
2. How will market participants access electronic official statements?
Under the proposed system, the investing public should have ready access to electronic official
statements at no charge. The MSRB proposes that a centralized website containing all
electronic official statements best serves investors. The MSRB seeks comment on:
ƒ
Whether the marketplace prefers a centralized website where all official statements
for issues in their new issue disclosure period are posted
ƒ
Whether the marketplace prefers in the alternative a more decentralized system in
which parties post their respective official statements separately and such statements
are connected by a centralized linking system
ƒ
Whether the MSRB or some other appropriate market participant should design and
operate any such centralized system
ƒ
The length of time the investing public should have access to electronic official
statements
The MSRB also requests comment on a number of other unrelated issues:
ƒ
Should amended rules require electronic formatting for all new issues, or should
certain classes of new issues continue to be subject to physical delivery
requirements?
2
ƒ
Should issues exempt from SEC Rule 15c2-12 receive similar treatment as those
issues subject to the Rule?
ƒ
Should there be a single ultimate deadline under an amended Rule G-36 for all issues
requiring that official statements arrive at the MSRB by no later than the bond closing?
Where to Send Comments
Ernesto A. Lanza, Senior Associate General Counsel
Municipal Securities Rulemaking Board
1900 Duke Street
Suite 600
Alexandria, VA 22314
Written comments must be submitted no later than September 15, 2006. All comments will be available
for public inspection.
3